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Bias in Estimating the Almost Ideal Demand System with the Stone Index Approximation


  • Pashardes, Panos


This paper shows that the commonly used Stone index approximation can bias the parameter estimates of the almost ideal demand system. The bias mostly affects the price parameters and can be more serious when the budget share equations are estimated with individual household rather than aggregate data. In the absence of strong substitution effects, the price parameter bias can be largely corrected through simple reparameterization. Copyright 1993 by Royal Economic Society.

Suggested Citation

  • Pashardes, Panos, 1993. "Bias in Estimating the Almost Ideal Demand System with the Stone Index Approximation," Economic Journal, Royal Economic Society, vol. 103(419), pages 908-915, July.
  • Handle: RePEc:ecj:econjl:v:103:y:1993:i:419:p:908-15

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    References listed on IDEAS

    1. Becker, Gary S., 1971. "The Economics of Discrimination," University of Chicago Press Economics Books, University of Chicago Press, edition 2, number 9780226041162, March.
    2. Weiss, Yoram, 1976. "The Wealth Effect in Occupational Choice," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(2), pages 292-307, June.
    3. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-298, April.
    4. Benabou, R., 1991. "Location, Education, and Production," Working papers 582, Massachusetts Institute of Technology (MIT), Department of Economics.
    5. Fershtman, Chaim & Weiss, Yoram, 1993. "Social Status, Culture and Economic Performance," Economic Journal, Royal Economic Society, vol. 103(419), pages 946-959, July.
    6. Cole, Harold L & Mailath, George J & Postlewaite, Andrew, 1992. "Social Norms, Savings Behavior, and Growth," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1092-1125, December.
    7. Baumol, William J., 1996. "Entrepreneurship: Productive, unproductive, and destructive," Journal of Business Venturing, Elsevier, vol. 11(1), pages 3-22, January.
    8. Basu, Kaushik, 1989. "A Theory of Association: Social Status, Prices and Markets," Oxford Economic Papers, Oxford University Press, vol. 41(4), pages 653-671, October.
    9. Weiss, Yoram & Lillard, Lee A, 1978. "Experience, Vintage, and Time Effects in the Growth of Earnings: American Scientists, 1960-1970," Journal of Political Economy, University of Chicago Press, vol. 86(3), pages 427-447, June.
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